Filed by
Charles River Laboratories International, Inc.
pursuant
to Rule 14a-12
of the
Securities Exchange Act of 1934
Subject
Company: Charles River Laboratories International, Inc.
(Commission
File No.: 001-15943)
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Baird 2010 Growth
Stock Conference
Charles River and
WuXi PharmaTech:
The First Global
Early-Stage CRO
James C. Foster
Chairman, President and CEO
May 19, 2010
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charles river
(C) 2010 Charles River Laboratories International, Inc.
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Safe Harbor Statement
This document includes "forward- looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements may
be identified by the use of words such as "anticipate," "believe," "expect,"
"estimate," "plan," "outlook," and "project" and other similar expressions that
predict or indicate future events or trends or that are not statements of
historical matters. These statements are based on current expectations and
beliefs of Charles River Laboratories ("Charles River") and WuXi PharmaTech
(Cayman) Inc ("WuXi"), and involve a number of risks and uncertainties that
could cause actual results to differ materially from those stated or implied by
the forward-looking statements. Those risks and uncertainties include, but are
not limited to: 1) the possibility that the companies may be unable to obtain
stockholder or regulatory approvals required for the combination; 2) problems
may arise in successfully integrating the businesses of the two companies
(including retention of key WuXi executives); 3) the acquisition may involve
unexpected costs; 4) the combined company may be unable to achieve cost and
revenue synergies; 5) the businesses may suffer as a result of uncertainty
surrounding the acquisition; and 6) the industry may be subject to future
regulatory or legislative actions and other risks that are described in
Securities and Exchange Commission ("SEC") reports filed or furnished by Charles
River and WuXi.
In addition, these statements include statements regarding the projected 2010
financial performance of WuXI, the availability of funding for our customers and
the impact of economic and market conditions on them generally, the anticipated
strength of our balance sheet, the effects of our 2009 and 2010 cost-saving
actions and other actions designed to manage expenses, operating costs and
capital spending, and to streamline efficiency, and the ability of the Company
to withstand the current market conditions. Forward-looking statements are based
on Charles River's current expectations and beliefs, and involve a number of
risks and uncertainties that are difficult to predict and that could cause
actual results to differ materially from those stated or implied by the
forward-looking statements. Those risks and uncertainties include, but are not
limited to: the ability to successfully integrate the businesses we acquire; the
ability to successfully develop and commercialize SPC's technology platform; a
decrease in research and development spending, a decrease in the level of
outsourced services, or other cost reduction actions by our customers; the
ability to convert backlog to sales; special interest groups; contaminations;
industry trends; new displacement technologies; USDA and FDA regulations;
changes in law; continued availability of products and supplies; loss of key
personnel; interest rate and foreign currency exchange rate fluctuations;
changes in tax regulation and laws; changes in generally accepted accounting
principles; and any changes in business, political, or economic conditions due
to the threat of future terrorist activity in the U.S. and other parts of the
world, and related U.S. military action overseas. A further description of these
risks, uncertainties, and other matters can be found in the Risk Factors
detailed in Charles River's Annual Report on Form 10-K as filed on February 19,
2010, as well as other filings we make with the SEC.
Because forward-looking statements involve risks and uncertainties, actual
results and events may differ materially from results and events currently
expected by Charles River and WuXi. Charles River and WuXi assume no obligation
and expressly disclaim any duty to update information contained in this filing
except as required by law.
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Regulation G
This presentation includes discussion of non-GAAP financial measures with
respect to Charles River and also with respect to WuXi included in WuXi's
first-quarter 2010 earnings release filed on Form 6-K with the SEC on May 12,
2010. We believe that the inclusion of these non-GAAP financial measures
provides useful information to allow investors to gain a meaningful
understanding of our core operating results and future prospects, without the
effect of one-time charges, consistent with the manner in which management
measures and forecasts the Company's performance. The non-GAAP financial
measures included in this presentation are not meant to be considered superior
to or a substitute for results of operations prepared in accordance with GAAP.
The company intends to continue to assess the potential value of reporting
non-GAAP results consistent with applicable rules and regulations. In accordance
with Regulation G, you can find the comparable GAAP measures and reconciliations
to those GAAP measures on our website at ir.criver.com, or with respect to WuXI,
in WuXi's current report on Form 6-K filed with the SEC on May 12, 2010,
available at the SEC's website, www.sec.gov.
Additional Information
This document may be deemed to be solicitation material in respect of the
proposed combination of Charles River and WuXi. In connection with the proposed
transaction, Charles River will file a preliminary proxy statement and a
definitive proxy statement with the SEC. The information contained in the
preliminary filing will not be complete and may be changed. Before making any
voting or investment decisions, investors and security holders are urged to read
the definitive proxy statement when it becomes available and any other relevant
documents filed with the SEC because they will contain important information.
The definitive proxy statement will be mailed to the shareholders of Charles
River seeking their approval of the proposed transaction. Charles River's
shareholders will also be able to obtain a copy of the definitive proxy
statement free of charge by directing a request to: Charles River Laboratories,
251 Ballardvale Street, Wilmington, MA 01887, Attention: General Counsel. In
addition, the preliminary proxy statement and definitive proxy statement will be
available free of charge at the SEC's website, www.sec.gov or shareholders may
access copies of the documentation filed with the SEC by Charles River and on
Charles River's website at www.criver.com.
Charles River and its directors and executive officers and other members of
management and employees may be deemed to be participants in the solicitation of
proxies in respect of the proposed transaction. Information regarding Charles
River's directors and executive officers is available in Charles River's proxy
statement for its 2010 annual meeting of shareholders, which was filed with the
SEC on March 30, 2010. Information regarding the persons who may, under the
rules of the SEC, be considered participants in the solicitation of Charles
River shareholders in connection with the proposed transaction will be set forth
in the preliminary proxy statement when it is filed with the SEC.
This document does not constitute an offer of any securities for sale or a
solicitation of an offer to buy any securities. The Charles River shares to be
issued in the proposed transaction have not been and will not be registered
under the Securities Act of 1933, as amended (the "Securities Act"), and may not
be offered or sold in the United States absent registration or an applicable
exemption from registration requirements. Charles River intends to issue such
Charles River shares pursuant to the exemption from registration set forth in
Section 3(a)(10) of the Securities Act.
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The New Charles River
> Charles River signed a definitive agreement to acquire WuXi PharmaTech for
~$1.6B(1) in cash and stock on April 26th
> The combination creates the first early-stage contract research
organization (CRO)
> Offers a full range of products and services from molecule creation to
first-in-human testing
> Charles River's expertise in in vivo biology combined with WuXi's expertise
in chemistry creates a CRO capable of supporting clients' early-stage drug
development efforts on a global basis
> Drives CRL shareholder value through profitable growth
(1) Based on CRL's 04/23/2010 closing stock price.
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> A leading in vivo biology company
> $1.20B in net sales (FY `09)
> Unique portfolio of products and services focused on the research and
development continuum for new drugs
> A multinational company with ~8,000 employees worldwide
[] ~70 facilities in 16 countries
o Continuous expansion to support client needs
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Source: Based on Charles River's FY 2009 net sales.
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WuXi Today
> A leading chemistry company
> $270M in net sales (FY09)
> Service portfolio supports clients early with molecule creation, extending
downstream through laboratory and manufacturing services
> Largest China-based CRO with ~4,200 employees worldwide
[] One of the largest employers of chemists in the world
[] 7 facilities in China and U.S. to support clients globally
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6 Source: Based on WuXi's information as disclosed in its Form 20-F filed with
the SEC on 04/23/2010 and other public documents.
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WuXi Overview
Headquarters
Service Offerings
Employees
Facilities
Customers
* Current Good Manufacturing Practice
> Shanghai, China
> Laboratory services, consisting of synthetic and medicinal chemistry,
DMPK/ADME, biology, microbiology, in vivo pharmacology, toxicology,
pharmaceutical development, analytical services, biopharmaceutical, in
vitro and in vivo biocompatibility testing and efficacy testing
> Manufacturing services, focusing on advanced intermediates and active
pharmaceutical ingredients (APIs)
> ~4,200 employees (~3,800 in China and ~400 in the U.S.)
~ 2.0M ft2 of lab facilities and manufacturing space
> China:
> 1.0M ft(2) total research facilities in Shanghai and Tianjin
[X] 293K ft(2) total cG
|X| 293K ft(2) total cGMP* quality process development and
manufacturing facilities in Shanghai
[X] 314K ft(2) drug safety evaluation center in Suzhou
> United States:
[X] 209K ft(2) total three state-of-the-art FDA-registered facilities
in St. Paul, MN, Philadelphia, PA and Atlanta, GA
> Over 800 clients worldwide including 100+ for pharmaceutical services and
700+ for biologics and device services
> 100% repeat busine from top 10 customers
Source: Based on WuXi's information as disclosed in its Form 20-F filed
with the SEC on 04/23/2010 and other public documents.
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WuXi Overview -- History
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Source: Based on WuXi's information as disclosed in its Form 20-F
filed with the SEC on 04/23/2010 and other public documents.
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WuXi's Current Discovery Services
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CRL's Current Preclinical Services
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The New CRL: Global Integrated Services
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Drives Profitable Revenue Growth
> WuXi provides opportunity to enhance revenue growth while expanding Charles
River's margins
> Discovery and Chemistry services
[X] Fastest-growing business segment as pharmas increasingly choose t
outsource
[X] Significant growth opportunity for WuXi's new downstream services
o Service biology, DMPK/ADME, formulation, process research,
bioanalytical chemistry, manufacturing
> GLP safety assessment in China
[X] Expands the development and scope of GLP capabilities in China
> Manufacturing services
[X] Emerging opportunity for active pharmaceutical ingredients (APIs) for
clinical trial and commercial-scale manufacturing services in China
> New business opportunities
[X] Drives more business upstream and downstream with existing and
prospective clients based on unprecedented scope of early-stage
portfolio
> Expanded portfolio drives market share gains
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Leverages Increasing Strategic Importance of China
> Supportive of global pharmas who view China as the new frontier for drug development
> Pharmas are taking advantage of cost leverage by placing chemistry in China
[X] Lower cost, highly skilled scientists with advanced degrees
> Emerging opportunities for chemistry, safety assessment and manufacturing
services as clients advance development activities in China
[X] Charles River gains largest early-stage provider in China
> Enables clients to choose where to place work
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The New CRL Revenue Base*
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Leveraging the increasing strategic importance of China
* Based on FY 2009 combined sales. WuXi's information is as disclosed in its
Form 20-F filed with the SEC on 04/23/2010 and other public documents.
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The New CRL Business Segments
2009 Combined Sales*: $1.5B
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DS: Discovery Services RMS: Research Models and Services PCS: Preclinical
Services
* Based on FY 2009 combined sales, with Charles River's DIS included in DS and
WuXi's U.S.-based Laboratory Services included in PCS. WuXi's information is as
disclosed in its Form 20-F filed with the SEC on 04/23/2010 and other public
documents.
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The New CRL Business Portfolio
Discovery Services Research Models and Services Preclinical Services
[]A leader in discovery []The market leader in [] A leader in GLP safety
chemistry services research model production assessment
[]A leading position in []Largest number of most * Both in Western markets and
non-GLP efficacy testing widely used models China
* Breadth and depth of
* DIS * Disease-specific models specialty services is key
[]Developing position in []A leading service provider competitive advantage
chemistry-based with broad capabilities [] A leader in worldwide
manufacturing * GEMS, RADS, CSS biopharmaceutical services
(BPS)
* Research and commercial []A leader in
scale [] Phase I clinic in U.S.
endotoxin detection
* Endosafe([R])-PTS[]
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Compelling Value Proposition for Clients
[] Larger footprint with more capabilities enables clients to partner with one
company from chemistry to man
[] More attractive partner for biopharmaceutical companies looking to gain more
value from fewer service providers[] Enables clients to choose where to work:
North America, Europe or China* Charles River brand supports placement of work
in China[] Seamless transfer of therapeutics across the early-stage continuum
helps reduce time and cost to bring a drug to market* Enables sponsors to make
earlier "go/no-go" decisions
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Enhancing Client Relationships
[] Focus on expanding existing client partnerships
* Enhances solid, high-level relationships in the same companies
* Strengthens relationships with those clients where one company is
pre-eminent* Creates new opportunities with clients where both entities
currently have minority share[] Client retention driven by breadth of
portfolio, high-quality science and exceptional service
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Very Favorable Client Response
[] Senior management of CRL has reviewed the transaction with RandD of top 25
pharmaceutical and biotechnology clients* Response has been uniformly
positive[] Clients are viewing the acquisition as a strategic fit with CRL's in
vivo business, offering them the opportunity for larger relationships with CRL
* Clients already requesting follow-up meetings to discuss potential
expansion of relationships upstream [] Value of CRL brand seen as an advantage
in terms of standardizing products and services in China
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The New CRL Client Base
[] Client base composed of big pharma and biotech, small and mid-tier pharma
and biotech, academic and government clients, CROs and agricultural and
chemical manufacturers[] Top 10 clients represent ~35% of combined sales[] No
single client represents more than 6% of sales
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* Based on FY 2009 combined sales. WuXi's information is as disclosed in its
Form 20-F filed with the SEC on 04/23/2010 and other public documents.
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2011 General Assumptions (1)
[] Expect to recognize ~$20M of cost synergies
* Public company costs, SGandA, and refinement of operating structure[]
~4.5% average interest rate on new debt* New debt of ~$950M
[] Existing term loan is repaid
* Debt amortization begins in 4Q2010 (after close)
[] Expect to accelerate repayment with cash flow
[] Consolidated CRL non-GAAP tax rate expected to be ~25%-26% [] ~85-86M CRL
shares outstanding post-close[] Expected to be neutral (at bottom of or below
collar) to slightly accretive to non-GAAP EPS in 2011, and increasingly
accretive thereafter
(1) Combined financial information is presented as a supplementary non-GAAP
financial measure, and is not intended to be superior to or a substitute for
any financial measure prepared in accordance with GAAP. Furthermore, combined
financial information is not equivalent to pro forma financial information as
may be included in any proxy statement Charles River will file with the SEC in
connection with this transaction. For example, combined financial information
does not give effect to adjustments likely to be found in pro forma financial
information such as increased amortization and depreciation. Items excluded
from non-GAAP EPS consist of all deal-related costs including repatriation
impact.
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Synergies
Public company [] Reduction of Board, SOX, audit, legal, stock
and corporate exchange, insurance and related expenses ~1/4 of cost
[] Elimination of duplicative corporate overhead synergies
expenses and support functions
[] Leverage greater purchasing power in vendor
procurement relationships
Other ~1/4 of cost
[] Streamline duplicative sales and marketing
SGandA efforts synergies
[] Improve working capital management
Refinement of
certain operating [] Specific plans to be determined post-close ~1/2 of cost
units synergies
[] Meaningful opportunities exist
Revenue [] Cross-selling within existing clients --
upstream/downstream
synergies [] Leverage CRL sales force to expand WuXi's
penetration of small/mid-sized and academic accounts
Expect ~$20M in annual cost synergies, beginning in '11
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WuXi 1Q10 Results (1)
[] Strong Q1 net revenues increase of 36% to $80.6M
Non- %[] from
($ in millions) GAAP OI 1Q09
Reported $20.5 57%
Share-based comp (2.3) 15%
------------
CRL Presentation $18.2 65%
[] Non-GAAP diluted earnings per ADS of $0.25, an increase of 26%* Non-GAAP
earnings exclude share-based compensation costs associated with FAS123R
(1) Source: WuXi 1Q10 earnings release issued on May 11, 2010, as included in
the Form 6-K filed with the SEC on May 12, 2010.
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WuXi 2010 Guidance (1)
[] 2Q10 Guidance
* Net revenues of $76-$78M
* Non-GAAP gross margin better than 1Q10
[] Reaffirmed guidance for 2010 at the upper end of ranges* Net revenues growth
of 15-19% to $310-$320M
* Growth in non-GAAP operating income of up to 10%
[] "Continue to expect strong financial performance throughout 2010 and
beyond"
(1) Source: WuXi 1Q10 earnings release issued on May 11, 2010, as included in
the Form 6-K filed with the SEC on May 12, 2010.
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Transaction Summary
Purchase price[] ~$1.6B (1), including the assumption of WuXi's debt and cash
Consideration [] $21.25 (1) total per ADS subject to collar (below) per share
[] $11.25 in cash (~53%) plus [] $10.00 of CRL common stock (~47%) determined
by exchange ratio
Exchange Ratio[] $10.00 divided by 20-day weighted average closing price prior
to closing subject to collar (below)
Collar[] At Charles River's stock price of $37.1486 or below, exchange ratio is
fixed at 0.2692; at a price of $43.1726 or above, exchange ratio is fixed at
0.2316
Premium[] 28% based on WuXi's 04/23/2010 closing price of $16.57[] 38% based on
30-day average closing price of $15.45 Ownership[] Approximately 78% Charles
River/ 22% WuXi pro forma ownership
Tax Treatment[] Taxable exchange under U.S. tax law
(1) Based on CRL's 04/23/2010 closing stock price.
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Transaction Timeline
[] HSR Filed May 11, 2010[] Proxy to be filed shortly
[] Still on track to close by the 4Q10, subject to approval by each company's
shareholders and the satisfaction of customary closing conditions and
regulatory approvals* Shareholder meetings to be scheduled following clearance
by the SEC and the Cayman Courts
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Integration Planning
[] Very complementary portfolios with minimal overlap
[] Integration team leaders have already met (week of 5/3)* CRL: Dave Johst,
EVP, Human Resources, General Counsel and CAO
* WX: Edward Hu, COO
[] Integration sub-teams formed and identifying key objectives* Focus on
client-facing functions
[] In process of engaging consultant to support integration effort[] Initiate
integration process immediately following close
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WuXi Senior Management Joins CRL
[] Ge Li, PhD: Corporate EVP and President, Global Discovery and China
Services* Joins CRL Board, along with two additional directors chosen by WuXi[]
Edward Hu: Corporate SVP and General Manager, Global Discovery and China
Services[] Shuhui Chen, PhD: Corporate SVP and General Manager, Chemistry
Services and Chief Scientific Officer, China[] Suhan Tang, PhD: Corporate VP
and General Manager, Manufacturing Services[] Employment agreements with top
four executives* Each agreement has a three-year term
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The New CRL: A Unique Opportunity
[] Combines leaders in in vivo biology and chemistry
[] Larger footprint with more capabilities enables clients to partner with one
company from chemistry to man [] Supportive of global pharmas who view China as
the new frontier for drug development [] Dramatically improves both companies'
ability to meet existing and future client needs[] WuXi provides opportunity to
drive revenue growth while expanding Charles River's margins* Expect to
generate $20M in annual cost synergies* Opportunity for meaningful revenue
synergies
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Accelerating Drug Development. Exactly. [C] 2010 Charles River Laboratories International, Inc. |